The feature does work, it's just that some PSP games use textures in bothersome ways that make it very hardcore to work with.;]

Most textures in this game are generated from smaller sprites that are combined into tilesets, but some of tiles will differ every frame or every other frame to create animations like flowing water.
Also each sprite in such texture might still use it's own separate color which adds a bit more work, and if it also get's color variants for different time/weather it would multiply that extra work by a lot:].
Then there are also player character sprites which are just 2 sprites per texture, but changing every frame and thanks to game being awful - with each frame being affected by previous ones it leads to far too many variants to realistically replace.

I would not recommend replacing textures in this game at all;p, many textures will for sure be possible to replace in it, but considering how this game works there's really no option that would make it less bothersome.